Flash PMI in focus as Japan returns to trading, Canada data Friday
Stock markets around the world rallied Thursday as traders continued to react positively to the Fed’s latest decision and projections.
Yesterday's Fed news left both hawks and doves with something to cheer about. For the hawks, the statement indicated conditions were aligning for a rate hike but not just yet. With Regional Fed Presidents Mester and Rosengren joining George, the stage appears to be set for a December rate increase unless there's some kind of negative surprise. A spectacularly low jobless claims report this morning confirms the US job market remains robust as it approaches full employment, while the Kansas City Fed report showed a struggling region starting to improve.
The doves, meanwhile, took encouragement from the dot plot fed funds projections suggesting members are considering only two rate hikes in 2017, indicating a shallow pace of future increases and confirming a lower neutral rate goal of 1.00-1.25%. Markets really took off after Fed Chair Yellen indicated in her press conference that the US economy has more room to run than thought without overheating.
So traders are responding to what looks like a Goldilocks scenario where the US economy is growing enough to support robust corporate earnings but not fast enough to force the Fed to put on the brakes more aggressively. USD has faded on this feeling as traders adjust lower the number of potential rate hikes over the next year down to two with the USD dollar index trading near 95.00. Gold, GBP and AUD have taken advantage of the greenback’s slide.
Crude oil remains in rally mode this morning with WTI gaining over 2% trading back up above $46.00. Another steep drop in US inventories this week has provided provides a fundamental tailwind for Texas Tea while speculation continues to swirl ahead of informal talks between OPEC countries and Russia at a big conference in Algeria this weekend. The latest rumours suggest Iran and Saudi Arabia, the countries at the centre of the market share battle potentially having a preparatory sit down ahead of the bigger meeting. Friday’s energy trading may be dominated by deal speculation with some potential interest in US drilling activity.
In currency markets, JPY underperformed its peers with the country closed for Equinox Day. Today’s return to trading could see significant action in Japanese markets as traders there get the chance to react to the FOMC and other central bank decisions and catch up to moves made by other markets. Singapore markets could attract some attention around today’s inflation figures.
Trading may also be active ahead of the weekend around flash manufacturing reports for Japan, France, Germany and the US give traders their first feeling about how economies around the world are performing so far this month and if summer trends are continuing or not.
The strongest currency today has been NOK which along with CAD, MXN and RUB has benefitted from rising oil prices. NOK has been particularly strong with the Norges Bank holding rates steady not cutting them and Governor Olsen indicating a rate cut was not even discussed. This and the RBNZ holding rates are particularly important for trading in CAD Friday around Canada data.
Unlike most other resource country central banks, the Bank of Canada has not cut interest rates this year in response to lower commodity prices, its last cut having come in July 2015. Governor Poloz prefers to let CAD to the heavy lifting instead. The Bank of Canada has been hoping the economy would bounce back from the spring forest fire disruptions in the summer but indicated at its last meeting that July was not as strong as hoped. Friday’s Canadian retail sales and inflation figures may give a better idea of how the Canadian economy is doing and whether the Bank of Canada may come under pressure to cut rates later this year or not.
There have been no major corporate announcements after the US close today
Significant announcements released overnight include:
Norway interest rate 0.50% no change as expected
US jobless claims 252K vs street 261K
US existing home sales 5.33M vs street 5.45M
US leading index (I0.2%) vs street 0.0% vs previous 0.4%
US natural gas 52 BCF vs street 54 BCF
US KC Fed 6 vs street (3)
Upcoming significant economic announcements include:
(Note: 11:30 am in Sydney/Melbourne is currently 1:30 pm in Auckland, 4:30 pm in Vancouver, 7:30 pm in Toronto/Montréal, 12:30 am in London and 8:30 am in Singapore)
10:30 am AEST Japan flash manufacturing PMI previous 49.5
3:00 pm AEST Singapore consumer prices street (0.4%)
3:00 pm AEST Singapore core CPI street 1.1%
7:45 am AEST France GDP street 1.4%
8:00 am AEST France flash manufacturing PMI street 48.5
8:00 am AEST France flash service PMI street 52.0
8:30 am AEST Germany flash manufacturing PMI street 53.1 vs previous 53.6
8:30 am AEST Germany flash service PMI street 52.1
8:30 am EDT Canada retail sales street 0.1% vs previous (0.1%)
8:30 am EDT Canada retail ex auto street 0.5% vs previous (0.8%)
8:30 am EDT Canada consumer prices street 0.1%
8:30 am EDT Canada core CPI street 1.4%
9:45 am EDT US Markit flash manufacturing PMI street 52.0
12:30 pm EDT FOMC Kaplan speaking
1:00 pm EDT US Baker Hughes drill rig count previous 506
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